Today’s Key Takeaways: Another road to resources moves forward – West Susitna Access Project. What will stop oil’s bull run? HEX wins Cook Inlet Lease Sales – bearish on investment environment. EPA contradicts itself -again-in politically polarizing Pebble announcement. Senator Micciche won’t seek reelection.
NEWS OF THE DAY:
State-owned Alaska corporation advances plans for road through the Mat-Su
James Brooks, Alaska Beacon, May 25, 2022
The state-owned Alaska Industrial Development and Export Authority has requested permission from the federal government to build a 100-mile road into the mountainous western Matanuska-Susitna Borough.
On Tuesday, AIDEA officials said by email that they had filed a permit request under Section 404 of the Clean Water Act with the U.S. Army Corps of Engineers. That permit would allow the work needed to cross the Susitna, Skwentna and other rivers and wetlands along the road, which is formally known as the West Susitna Access Project.
“Today marks the beginning of the process to evaluate an access route to unlock opportunities in the fastest-growing region of the state,” said AIDEA executive director Alan Weitzner in a prepared statement. “We know the area is home to tremendous economic potential and offers recreational opportunities for residents of the Mat-Su Borough and all Alaskans.”
In AIDEA’s prepared statement, Gov. Mike Dunleavy said he supports the road.
Beyond access to mines and the creation of jobs, he said the road is valuable because “it would also mean new recreational opportunities for Alaskans and thousands of additional acres of land available for agriculture to help our state be more food secure. The feasibility analysis AIDEA is about to undertake will provide the state and stakeholders with the information needed to make informed decisions about whether or not to proceed with the proposed road project.”
As currently planned, the road would reach from a point southwest of Big Lake to an airstrip in the Yentna Mining District.
Several mining companies are exploring mineral prospects in the area, and the gas pipeline envisioned as part of the massive Donlin Gold mine would also pass near the end of the road.
The road is supported by the Mat-Su Borough government, which has partially funded predevelopment work. The Alaska Legislature authorized $8.5 million for project permitting last year.
According to preliminary estimates, the road would cost $300 million to $400 million to complete. It isn’t clear how project developers will find that funding.
In some AIDEA-backed projects, the state-funded organization has collected tolls. In others, the state treasury has footed all or part of the bill.
A group calling itself Defend the West Su is opposing the project. Backed by the environmental and fishing organization SalmonState, it includes area residents, hunting and fishing lodges, and other fishing companies that fear road construction in the area.
“The proposed West-Su Access Road threatens the Mat-Su region’s existing economy — while providing no benefit to the state,” said Steve Perrins, owner of Rainy Pass Lodge, in a prepared statement. “As an Alaskan, it’s incredibly upsetting that AIDEA is throwing away state money on a project that will damage our economy, kill many Mat-Su tourism-generating lodge businesses, and destroy my business — the oldest hunting and recreation lodge in Alaska.”
OIL:
Oil snaps inverse dollar link leaving little to check its bull run
Ahmad Ghaddar, Saikat Chatterjee, Reuters, May 26, 2022
Oil’s bull run is taking little notice of the strong U.S. dollar, breaking crude’s historical inverse link to the greenback and giving analysts confidence it has further to go based on current market fundamentals.
A strong dollar typically weighs on oil prices because it makes the commodity more expensive for holders of other currencies, potentially hurting demand for crude.
This time the dollar is being boosted by its safe-haven appeal as clouds gather over the economic outlook while oil is being driven higher by disruptions to Russian supplies linked to the conflict in Ukraine and strong demand, analysts say.
The dollar and oil have been moving in the same direction since late March, when the positive correlation hit its highest since May 2019, and analysts expect the link to persist given the tight oil market and broader risks to the global economy.
The usual inverse correlation between oil and the dollar had held fast for most of 2020 and into early 2021 as demand for crude was undermined by the global pandemic.
“Considering that spare capacity is low, there are likely larger supply disruptions ahead of us, and that oil demand will likely keep increasing, I would expect that oil will primarily be driven by its own fundamentals,” UBS analyst Giovanni Staunovo said.
Brent crude hit a 14-year high above $130 a barrel in early March due to a tight supply outlook and expectations of significant disruptions to Russian oil output after Moscow sent troops into Ukraine on Feb. 24.
Oil is currently trading around $115 a barrel as demand concerns from COVID-19 related lockdowns in the world’s top oil importer China and fears of a global economic slowdown tempered concerns about supply.
GAS:
HEX Subsidiary Wins Cook Inlet Oil And Gas Leases In State Sale
Anthony Moore, KSRM, May 25, 2022
The Alaska Division of Oil and Gas received bids on two tracts covering 5,120 acres and totaling approximately $100,659 in bonus bids from one bidder, according to preliminary results from the 2022 Cook Inlet Areawide oil and gas lease sale. The sole bidder was Furie Operating Alaska, LLC, a subsidiary of HEX, LLC, which operates the Kitchen Lights Unit offshore in Cook Inlet. The tracts Furie won are adjacent to that unit, which currently produces natural gas for local utilities.
John Hendrix, President, and CEO of the HEX Cook Inlet says that the information of winning the tracts was news to him, but he says:
“Well, I know we applied for it. We’re trying to be good, responsible resource development representatives in the state of Alaska and it’s good that we won it. We hope to basically be able to develop it in the future, but we must have a fiscal regime and a state that wants us to develop our Alaska resources, and a federal government to boot.”
The Kitchen Lights unit is one of the newest gas fields in Cook Inlet, going online in 2015. It has produced more than 30 billion cubic feet of gas. HEX purchased Furie and the Kitchen Lights development in July 2020 and has actively worked to improve production.
Despite the news of winning the tracts, Hendrix adds:
“The federal government has an environment no one would want to invest in right now. We bought into state leases, but we have our own challenges right now with the state of Alaska. We are basically overtaxed. We have to pay almost 30% of our gross receipts to the state of Alaska for royalties and for those they awarded royalties to and for property taxes. Right off the top, 30%. No fishermen gives up 30%. No miner gives up 30%, but we give up 30% as Alaska’s only oil and gas company that’s owned by Alaskans 100%. We’re here as a company on the Kenai. We want to do the Kenai proud and our state proud, but we’ve been blessed with a state that had big companies come in and we’ve got bureaucracy formed around big companies and we need to adjust and change to survive the years ahead, not only our company but the state.”
The Division of Oil and Gas did not receive bids in the 2022 Alaska Peninsula Areawide lease sale, which was held concurrently with the Cook Inlet Areawide sale.
Preliminary results from the sale, which was conducted online, are posted at dog.dnr.alaska.gov. More details will be posted as they become available.
MINING:
EPA takes another shot at stopping Pebble
A.J.Roan, North of 60 Mining News, May 25, 2022
n a polarizing announcement, the Environmental Protection Agency released a revised Proposed Determination under Clean Water Act Section 404(c) to prohibit and restrict the use of certain waters in the Bristol Bay watershed. If finalized, the decision would lock out any future for a Pebble mine, and the enormous quantities of copper and other resources it could provide for the global transition to renewable energy.
“This is clearly a giant step backwards for the Biden Administration’s climate change goals,” Pebble Limited Partnership CEO John Shively told North of 60 Mining News. “I find it ironic that the President is using the Defense Production Act to get more renewable energy minerals such as copper into production while others in the Administration seek political ways to stop domestic mining projects such as ours. As we are still actively working through the established permitting process via our appeal of the Army Corps of Engineers permit denial, we oppose any action that is outside of that process.”
You can read about the initial Army Corps denial at Army Corps denies permit for Pebble Mine in the November 25, 2020, edition of North of 60 Mining News.
“This preemptive effort is clearly a political maneuver to attempt to block our ability to work through that established process,” continued Shively. “Further, the Army Corps of Engineers published an Environmental Impact Statement for Pebble in 2020 with input from many agencies including the EPA that states that the project can be done without harm to the region’s fisheries.”
You can read about the release of the FEIS at Major milestone on long path for Pebble in the July 31, 2020, edition of North of 60 Mining News as well as the full impact statement at https://www.arlis.org/docs/vol1/Pebble/Final-EIS/Pebble-FEIS-ch1.pdf.
“The EIS further notes the tremendous economic opportunity the project represents for the communities around Illiamna Lake where year-round jobs are scarce, and the cost of living is very high,” added the Partnership CEO. “We still need an opportunity to review the specific details that will be in the preemptive veto action. It is also worth noting that there are several internal steps that the EPA must follow before anything is final including a public comment period and a decision by the Assistant Administrator.”
Many of the groups opposed to developing a mine at Pebble came out praising the EPAs decision – although the actual Proposed Determination has not been published until May 26, a “pre-publication” Federal Register Notice for Proposed Determination can be read at https://www.epa.gov/bristolbay/2022-proposed-determination-pebble-deposit-area – with Alaskan anglers, hunters, local businesses, indigene and Native tribe representatives, as well the extensive fishing industry in Southwest Alaska rallying behind the announcement.
“Bristol Bay Native Corporation welcomes EPA’s announcement today,” said BBNC President and CEO Jason Metrokin. “This proposal is good news for Bristol Bay, and it could not come at a more opportune time, as millions of sockeye salmon return to their home waters and the people of the region ready their nets once again engage in annual subsistence and commercial fishing activities.”
One of, if not the largest, reason for such opposition toward Pebble is the perceived potential that waste from mining the large copper-gold-molybdenum-silver-rhenium deposit could harm the world-class Bristol Bay fishery.
EPA’s Proposed Determination would prohibit and restrict discharges of dredged or fill material associated with mining the Pebble deposit into waters of the United States within the mine site footprint located in the South Fork Koktuli River, North Fork Koktuli River, and Upper Talarik Creek watersheds.
Bristol Bay’s salmon resources have significant nutritional, cultural, economic, and recreational value, both within and beyond the region with a total economic value, including subsistence uses, of the Bristol Bay watershed’s salmon resources being estimated at more than US$2.2 billion in 2019.
Furthermore, Bristol Bay commercial salmon fisheries generate the largest portion of this economic activity, resulting in 15,000 jobs and an economic impact of US$2 billion in 2019, with roughly US$990 million contributing to Alaska.
However, as an argument, a Pebble Mine project advanced to the final step of the permitting process would produce 320 million pounds of copper; 363,000 ounces of gold; 15 million pounds of molybdenum; 1.8 million oz of silver; and 12,000 kilograms of rhenium over the first 20 years of mining.
With these numbers, at a processing rate of 180,000 tons per day, the initial 20-year mine considered in the preliminary economic assessment is forecast to generate a post-tax internal rate of return of 15.8% and a net present value (7% discount) of US$2.3 billion.
At forecast long-term metals prices, these expansion scenarios generate an IRR of 18.9 to 22.7% and an NPV of US$6.7 to US$9.8 billion.
Under the expansion scenarios, this operation would pay US$22 billion to the state; US$4 billion to the borough; and US$19 billion to the federal government over roughly a century.
You can read a complete breakdown of the Pebble PEA at PEA reveals Pebble economics, benefits in the September 10, 2021, edition of North of 60 Mining News.
After careful consideration of the environmental concerns, the Army Corps of Engineers approved the FEIS for developing a mine at Pebble only to deny federal permits when it came time to issue a record of decision shortly after the 2020 U.S. presidential election.
You can read about the contradiction by USACE at Pebble assails Corps economic findings in the March 19, 2021, edition of North of 60 Mining News.
“The EPA was intimately involved with the review process and the Army Corps of Engineers’ determination that the mine would not harm the salmon fishery,” said Power the Future Alaska State Director Rick Whitbeck. “The only ‘determination’ that the EPA has made is to agree to interject itself and further politicize a process that hasn’t yet played out. … Pebble – based on science – will never impact the Bristol Bay fishery, but will provide hundreds of jobs, along with millions of tons of domestic supplies needed for renewable energy products.”
Regardless if one is for or against Pebble, lawmakers are concerned with EPA’s intention to implement a predetermined Section 404(c) of the Clean Water Act decision. By law, the 404 section of the Clean Water Act is under the jurisdiction of the Army Corps of Engineers, with the EPA given the option to veto after a determination has been given by USACE.
Concerns arise from EPAs encroachment and overreach into Pebble due to the possible precedent set by EPA advancing final section 404 determination that could deter other companies from investing in U.S. projects for fear that EPA could subjectively issue a veto without a full evaluation of the proposal – a predetermination before all the information has been accumulated.
Nonetheless, a final environmental impact statement was issued showing that negligible harm would befall the Bristol Bay fisheries, and Northern Dynasty Minerals Ltd. – the company heading the advancement of the Pebble mine – stands firmly behind the data.
“The Pebble project remains an important domestic source for minerals necessary for the Biden Administration to reach its green energy goals and if it blocks Pebble it will have to seek minerals to meet its goals from foreign sources which simply do not have the same environmental standards as we do,” finished Shively.
POLITICS:
Alaska Senate president says he won’t seek reelection
Associated Press, May 25, 2022
Alaska Senate President Peter Micciche said Wednesday he will not seek re-election this year, citing a desire to spend more time with family.
His announcement comes after the Legislature last week ended its four-month regular session and a week before a candidate filing deadline.
The Soldotna Republican said he has spent nearly 11 of the last 16 months away from his four daughters and wife, “who need me at home. My family is my priority.” Last year was marked by drawn-out budget fights and four special sessions.
The Division of Elections shows that Micciche had previously filed to run for the seat. Leona Long with the Senate Majority press office said by email that he had filed “months ago and things have changed.”
The division currently shows three other candidates for the Senate seat, including Tuckerman Babcock, a former Republican state party chair.
Micciche was first elected to the Senate in 2012 and has been Senate president since last year. He led a Republican-majority caucus whose members had sharply different views on the annual dividend paid to residents from Alaska’s oil-wealth fund.
Senate Minority Leader Tom Begich last week called Micciche a friend. The two spoke to reporters together in Micciche’s office on May 19 about their impressions of the legislative session that had just ended.
Begich, an Anchorage Democrat, said working with Micciche had been a “joy and a delight.”